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Lockheed Martin said profits in the second quarter plunged almost 80 per cent after the US defence group incurred pre-tax charges of $1.6bn on several of its programmes.
Shares in the world’s biggest defence company behind the F-35 fighter jet fell as much as 9 per cent in New York after it also slashed its earnings outlook for the year. The shares recovered but were still down 6.5 per cent in early afternoon.
Lockheed on Tuesday cut its full-year earnings per share prediction to $21.70-$22, down from a previous forecast of as high as $27.30.
Its net earnings in the quarter fell to $342mn, or $1.46 a share, compared with $1.64bn, or $6.85 a share in the same period a year earlier.
Revenues of $18.2bn for the quarter to the end of June were largely flat, while Lockheed also reported negative free cash flow of $150mn.
It said the new losses stemmed mainly from difficulties with a classified programme in its aeronautics division, which recorded a $950mn charge. Lockheed also took a $57mn hit on its work for the Canadian government relating to the procurement of its maritime helicopters.
Chief executive Jim Taiclet was forced to defend the company’s actions on a call with analysts after several questioned whether it truly had a grip on the affected programmes. The $950mn charge for the aeronautics project follows a previous charge of $555mn in 2024.
“On one level you could argue this clears it all up, but on the other you could argue that it may be a roach motel, with more yet to emerge from under the bed, given the previous year’s charges,” said Agency Partners analyst Nick Cunningham in a note.
“This is typical of a defence contracting environment where growth is marginal, so there is no leeway to absorb problems, and a business of this size always has something bad going on,” he added.
Taiclet told analysts Lockheed had increased the level of oversight of the affected programmes. He said it had changed the review team for the aeronautics project, brought in “wider expertise from across the company and higher-level management as part of the scrutiny”.
Although defence contractors have benefited from a surge in military spending by western governments in response to the war in Ukraine as well as conflict in the Middle East, many have struggled with rising inflation and other cost increases that have affected legacy fixed-price contracts.
Robert Stallard, analyst at Vertical Research Partners, said the results would likely “deepen the already negative investor sentiment towards the stock”.
Lockheed, he said, had been on a “losing streak” recently with the departure of its chief financial officer and the loss of the US Air Force next generation stealth fighter contract to rival Boeing. Lockheed recently appointed Evan Scott as its new CFO to replace Jesus “Jay” Malave, who is taking up the same post at Boeing.
“While the programme charges are bad enough, the significant shortfall on free cash flow is also a worrying sign of operational headwinds,” added Stallard in a note to clients.
Lockheed’s F-35 fighter jet programme has been under scrutiny in recent months after the Pentagon reduced the number of jets it proposed to purchase as part of its 2026 budget. European nations have continued to purchase the aircraft despite pressure on governments to purchase fewer US-made weapons.
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